State could see $1.2 billion tax windfall

SPRINGFIELD — Illinois will end its fiscal year on June 30 collecting about $1.2 billion more in revenue than lawmakers anticipated when they put together the state’s latest budget a year ago.

However, officials warn that most of that money was a one-time occurrence and will not prevent a major drop in revenue for the next budget if the bulk of the temporary income tax increase is allowed to expire on schedule Jan. 1.

The numbers were contained in the latest revenue update from the Commission on Government Forecasting and Accountability, the General Assembly’s fiscal forecasting arm.

The commission has determined the state will collect about $1.2 billion more in revenue this fiscal year than lawmakers estimated when they adopted an official revenue estimate a year ago. That revenue estimate of about $35.4 billion was used by lawmakers to construct the current state budget.

Much of the increase is attributed to better-than-expected personal income tax collections. Sales taxes have also come in better than expected, and COGFA noted that utility taxes are doing better than estimated, something it says is likely the result of the harsh winter.

However, COGFA revenue manager Jim Muschinske said it appears the bulk of the extra revenue is one-time only and should not be built into next year’s budget. For example, stock market performance in 2013 was quite good, which helped with state income tax collections.

“I think it would be a little dangerous to assume that will recur,” he said.

Despite the windfall this year, the state still faces a significant drop in revenue next budget year because of the scheduled expiration of the income tax hike. The current 5 percent personal income tax rate is scheduled to drop to 3.75 percent on Jan. 1 unless lawmakers vote to extend it.

COGFA is estimating a drop of nearly $2 billion in revenue in the fiscal year that begins July 1. Budget negotiators in the House and Senate have been holding a series of hearings with agency directors to gauge the effects of such a drop. The directors have warned of significant program cuts and layoffs if the tax rates are allowed to go down.

Gov. Pat Quinn has called on lawmakers to make the temporary income tax rates permanent. He submitted two proposed budgets in March, one based on the tax rates continuing and the other reflecting cuts that would have to be made if the rates reduce.

“This (COGFA report) doesn’t change the fact that the governor’s proposed budget would protect education and other state priorities and the ‘not recommended’ budget would still force savage cuts to education and other state priorities,” said Quinn budget spokesman Abdon Pallasch. “The maintenance of the current tax rate is still part of the governor’s budget proposal.”

Unanticipated tax collections are supposed to be applied to the state’s bill backlog.

“That money has for the most part been committed to paying bills,” Muschinske said.

On Monday, Comptroller Judy Baar Topinka’s office estimated the total bill backlog at about $4.9 billion at the start of May. That includes both bills in her office waiting to be paid and her estimate of what is still being held in state agencies.

The COGFA report says that “unfortunately, that amount (of unpaid bills) is expected to rise before the end of the fiscal year. Group insurance delays continue to be problematic and the scheduled drop in the income tax rates provide no relief to the fiscal pressure the state continues to feel.”